42 F. 31 -

42 F1d 31

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Case Text

eAWYER V. EQUlTABLljl ACCID:I!:NT INS.

CINCINNATI.

31

:,The facts established by the vllrdict,so far as they areessentiaLto. the proper determination of the question .involved; may be thus summarized The assured, a residentofOsbkosh, on the 18th of April,1888, at Milwaukee, applied toW. H. CrMt, the Wisconsin state agent of the defendant, for accident insurance to the amount of 810,000. He was a stranger to Craft, who references. He informed Craft that he was president and treasurer of the Ingalls, White Rapids & Northern Railroad, a logging railroad in the northern woods, and referred Craft to the office of" the' Wisconsin Central Railroad. Craft said to him. that the agency could not write a poUcy in excess of $5,000, but he would take his ap.plication, and, if the. references .proved satisfactory, would forward the application to company with a recommendation that the policy ig.. sue. Thereupon Craft's son,in his presence and in the presence of the allsured, propounded the' qUllStions and wrote the answers in the blank application, so far as the blanks were filled at. the time. The application "faa ,theJ},signed by Kiel, who left with Craft his check for $50, the reqllired with the understandiug that the policy when issued slwulq .forwarded to bim at Oshkosh, Of, if the application should' be rejected, the .check was to.be returned. At no time was Kiel interrogate<Las to his income, nor did he make any stJ1tement respecting it. Craft,upon inquiry, satisfied himself respecting the desirability of the risk, and, in the absence of Kiel, and without his knowledge or tbe of theapplicatioll, added to ,the occupllition stated by J{je1 the "capitalist," and in the space in the prescribed blank, wbic4 had not been filled,. erased the printed word" wages," and inserted i9 writing ",income not less than $100.00," so that the statement would retld, "roy weekly income not less than $100.00," and thereupon forwarded the application to the defendant with a letter strongly recommending ,the acceptance of the risk. The policy was issued and sent to Graft, who in turn forwarded it to Mr. Kiel by mail, and used the check left with ,him for the premium. The application was. a printed blank furnished,bythe defendant company to its agents, and contained the uf;ualwarra,nty that thesl:atement of facts therein contained, and upon which the ,policy was to be based,.was ,true. The .company was not informe"q,'9f the action of Crllft in respect to his alteration of the signed until the last tr.ial of the action, when it timely tendered and paid: ,into court, to the use of the plaintiffs, the amount of pre,. mium, with accrued interest-to the date of such tender and payment. The alterations were manifestly in the! bandwriting of Craft, the agent, with .which the company be assum.edto have been familiar, and eJl:hibit a marked contrast to the hll-ndwl'iting of the son who filled the blank, with the exceptions stated. The printed instructions to agents required them, in case of, application for insurance in excess of $5,000, tlHlPply.to the home unawers to each question in the application, and stating the salary or weekly wages of applicant. Mr. Graft, at the trial, insisted that,: in insuring 'professional men, merchants, the custom to ignore that.que&.;

I'EDERAL REPORTER,

vol. 42.

non, or to insert such an amount as the agent thought reasonable; but he could not say that any of the general officers of the company had ever so instructed him. The rule of the company at that time was that weekly indemnity from all sources should not exceed weekly wages, and the amount of death benefit, when coupled with weekly benefit, was adjust-ed upon the basis of weekly indemnity. Mr. Kiel had during the fall previous invested in a .logging railroad and logging business that was largely incumbered. The inaorporation owning it at the time of this application was insolvent, and on the verge of bankruptcy, to the knowledge of Mr. Kiel. Within a few weeks thereafter the railroad and business passed into t.he hands of a receiver. Mr. Kiel had some considerable real estate, yielding income, but was indebted to an amount in excess of all his property, and was at the time of this application, to his knowledge, practically insolvent, although still iu receipt of rentals. His death occurred soon after, as found by the jury, from accidental drowning. 'The policy of insurance professes to be issued in consideration of the representations, agreements, and warranties made in the application, and contains an agreement by the assured that such declarations are warranted to be true in all respects; and said application is referred to and ma.de part of the contract, although no copy of the application accompanies the policy. It is also conditioned in the policy that, if any statements in the application are false, the policy shall be void. The question presented is whether the company is bound when its agentwronglully changes the application after it is signed, and before its transmission to his principal; the insured being guiltless of participation in the wrong. It was held in Insurance Co. v. Wilkinson, 13 Wall. 222, that insurance cOIi1panies acting through agents at a distance from the home office were bound by their acts within the general l'cope of the business intrusted to them, and that parties dealing with them are not bound by any limitation of authority not brought to their knowledge; that, when such agents prepare the application, and insert therein an untrue statement not given by the applicant, the company is bound, although the application be signed by the assured. The decision of that case was affirmed in Imurance Co. v. Mahone, 21 Wall. 152, where it was ruled that the proposals and answers prepared by the company's agent must be regarded as the act of the company, which they cannot be permitted to set up as a warranty by the assured when truthful answers were given to, but other and untruthful answers were substituted by, the agent. The court further held that it was of no consequence that the answers as written by the agent were read to and signed by theappli. , cant; that, having answered truly, the applicant had the right to assume that the answers he did make were accepted as meaning, for the purpose of obtaining a policy, what the agent stated them in writing to be. These cases were followed and approved in Insurance Co. v. Baker, 94 U. S. 610. There the agent of the company undertook to construe and interpret the answers of the applicant,and inserted in the application his construction nnd tnterpretation of the answers. but not the anSwers themselves. It

SAWYER tl. EQUITABLE ACCIDENT INB.CO. 011' CINCINNATI.

83

was held that the statement, although signed by the applicant, was one prepared by the company, for which it was responsible, and could not be asserted to defeat the policy. The counsel for the defendant strenuously contests the correctness of the rule thus laid down. They claim it to be in antagonism to settled principles of law: that the signer is conclusively presumed to know the contents of the instrument signed, and that, by signing it, he adopts every erroneous statement therein, and warrants its correctness. They further insist that the signer of an erroneous statement going to the basis of a contract of insurance has by that act fraudulently or negligently colluded with the agent, and become the active participant in an imposition upon the company, to its injury; and that to allow him thus to escape his warranty is to permit him to take advantage of his own wrong. They further insist that the cases cited are substantially overruled by the case of In8urance Co. v. Fletcher, 117 U. S. 519, 6 Sup. Ct. Rep. 837, and that the latter case presents the only logical principle by which such cases should be ruled, and is authoritative here to effectuate the defense and avoid the policy. Since some of the language of Mr. Justice FIELD in the latter case is said to antagonize the reasoning upon which the previous cases are based, the facts of the latter case should be carefully looked to, to ascertain the precise situation to which the argument is addressed. The printed application contained the usual warranty with respect to the answers, and the further agreement-wanting in the previous cases-that, "as only the officers at the home office had authority to determine whether or not a policy should issue on any application, and as they relied only on the written statements and representations referred to, no statements or representations made or information given to the persons soliciting or taking the application for the policy should be binding on the company, or in any manner affect its rights, unless they were reduced to writing, and presented at the home office in the application." To the policy was attached a copy of the application, with notice to the assured that, if corrections were desired respecting any unintentional errors or omissions in the application, when satisfactory to the company, a certificate to that effect would be issued by the proper officers. The agent falsely stated in the application the answers of the applicant signing the application, there being no evidence, as the court states, that the application was not read by him before he signed it, or that there was any imposition practiced upon him, or that, after receiving the policy, which he retained until death,-a period of over two years,-he applied to correct his answers, which, as written down, were conceded to be false. The opinion distinguishes this case from that of Insurance 00. v., Wilkinson, and kindred cases, upon the ground that in those cases no limitation upon the power of the agent was brought to the notice of the assured, and asserts that "in such cases it may well be held that the description of the risk, although nominally proceeding from the assured, should be regarded as the act of the company," while in the case then under consideration the power of the agent was expressly limited, and notice thereof embodied in the application which the assured signed, and which he v.42F.no.1-3

muBtcbe presumed to have read. So thai the false statement in the ap. pliCll.fion was' in law the3dopted act of the assured, who thereby be<JamEl, ; througbhis own negligence, an instrument and participant inthe fraud' of the agent, barring the right to assert the validity of It policy thus procured;, The decision proceeds upon the further ground that the retention' of. the policy withaoopy of the application attached was a ratification and approval of the false 'statements in the application, and of the fraud perpetrated, equally earring any right of recover)'; I find no conflict or wantoHiartnony in these decisions, the peculiar facts of each being considered:ln the Mahone and Baker Ozs/l8 the assured made truthful statetG an agent clothed with apparent authority to deal with the subject.aDd:without notice of any limitation of authority. The answer written by the agent, ahd signed by the applicant, was the interpretation' and legal effect given by the agent to the truthful answers of the applicant·. In such case it .may well be said that the agent, being possessed of the fMtS,.might deterrninefor his principal what interpretation should be giveh td ascertained facts as affecting the subject inquired of. anceCo.v.Chamberlainj132 U. S. 304, 312, 10 Sup. Ot. Rep. 87. In the Wilkinson Oa8e the erroneous information came from a third party to the agent, touching a fact of which the applicant was ignorant, and which was: accepted by the agent as satisfactory.' With no notice oflimitation of the authority of the agent to deal with the matter for his principal, the assured could rightfully assume from such act that the company was, content with 'the· information obtained. In such case. the answer was the' act of the company by its agent, and not that of. the· assured. In the Fletcher .ChBe, on the contrary,· there was express limitation of authorityof the agent. The assured signed the application with knowledge, or means 'of knowledge, of such limitation. If he failed to read the papar'signed, that was' his own negligence, operative to work a fraud updnithe'company. He was prevented by no fraud or deceit of the agent fromk1\owing the limitation of 'authority, or the statements to the company which he verified'by his signature. Ire was therefore held to have adopted ,the acts of the agent in excess of authority. as his own, and thf:rebyfu have become a participMt,in the fraud perpetrated upon the principil1. ' The distinctIon between the cases is clearly stated by Mr. Justice FmLD, and restinponIiotice to the assured of· the limitation upon the power of the agent.. I have been thus careful to verify the facta and groupds C)f decision inlnsurance Co. v. 'Pletcher. as counsel have sisted that the first in Mr. Justice FIELD'S opinion is in direct anfugonism to, and practically overrules, the previous decisions of the court, notwithstanding the distinotionbetween 'the cases stated in the' ;Opinion..r do not so read the meaning of the paragraph. Standing' ti!one,thEl'language is, undoubtedly, quite comprehenSIve; but it would be manifestlyunfairtoiclilnstrue it without reference to the facts of the case towhich;it Was addressed. So 'interpreted, it is to the effect only that, when both bel:ln deceived by the fraudulenta.ct of the ageIit,and thellSSUr6d, from neglect 'to read the application,when reading would have disclosed both the fraud and the limitation of author':'

SAWYER tl. EQUITABLE ACCIDENT· INS.:'OO.:'OF CINCINNATL

ity of the

t, was placed in the position of making false representations inducing a contract not otherwise obtainable, justice would require that the contract be canceled, and the premiums returI1ed. So construed. there is no lack of harmony in the line of decisions referred to. It not be presumed that the court designed to overrule the doctrine of prior cases which they were careful to distinguish from the case then before it. Coming now to the case in hand, it is clear that the defense of breach of warranty on the ground of false statement of income must fail, for the plain reason that the assured executed no such warranty. The paper signed was a blank as to that subject. The filling of that blank !'lequent to tbe signing, and was the act of the agent of the company, and without authority of the assured. He cannot be bound upon a warranty of which he was ignorant. Nor does the case fall' within the rule applicable to negotiable and other instruments executed in blank, and intrusted to the custody of another for use for the benefit of the signer or others, that, as hetween such party and innocent third parties, the p.ersonto whom the document is intrusted is deemed the agent'of the party to fill the blanks necessary to perfect the instrument; and this for two sufficient reasons: The application was written by the agent, who was apparently clothed with authority to do all acts needful in the premises. He propounded the questions which he deemed proper, and received and noted the answers thereto. He made no inquiries touching the income of the assured, nor was any statement demanded upon the subject. . In all this he acted for the company, and was pro hac vice the corporation. His silence as to the question was equivalent to an assertion to the assured that the question was not material, and was wai'"ed. Under such circumstances, the signing of the application with the blank unfilled cannot be claimed as an authority to the agent to till the blank. The rule applies to instruments intrusted to one who represents the sIgner, and thereby clothed with power to impose upon innocent third parties. But here the instrument was delivered to the agent of the company; and delivery to him, as respects the assured, was delivery to the company. In such case the assured is not estopped to deny the warranty. The company may, in fact, have relied upon the statements filled in the blank by its agent; but that is unavailing, because, to work an estoppel, the misconception as to the state of facts must have been induced, and the company must have been Olisled, by the words or conduct of the assured. But here the imposition was the act of its own agent, enabled by its authority, and not by the act or conduct of the assured, to work imposition. His acts with respect to the preparation and receipt of the application must be deemed the acts of the company. The principal should, therefore, bear the consequences of the conduct of a negligent or fraud ulent agent intervening between the assurllr and the assured, the latter being guiltless of fraud or collusion; and this upon the familiar principle that, when one of two innocent persons must suffer by the fraud or negligence or unauthorized act of a third, he who clothed.the third with power to deceive or injure must suffer the loss.

86

FEDERAL REPORTER,

vol. 42.

Nor do I think the position to be tenable that here was a failure oC oontrs,ct because the minds of the parties had not met, by reason of the alleged fraud perpetrated by Craft. There was a meeting of minds upon a contract of insurance, and a policy issued and accepted. The most that can be asserted is that the minds of the parties did not meet upon one of the inducements to the contract. That was, however, touching a matter which might be waived by the company, and, as to the assured, was waived by the act of its This opinion has thus far proceeded upon the theory that the question not asked of nor answered by the assured, and answered incorrectly by the agent, was material to the risk, and relied upon by the company, and that the home office was not negligent in the premises. I have preferred to so treat the question for the reason that, upon that postulate, I think, as matter of law, that 'judgment must go to the plaintiffs upon this verdict.But it may well be doubted whether the question was pertinent in any case except where the assured was under fixed salary. The book of instructions to agents, as well as the printed application, invariably speak of weekly wages or salary,never of income, until the adoption of the rl,ille that weekly indemnity must not be granted for more than two-thirds of the weekly wages or income of the applicant, which. as the secretary states, was adopted since this policy was issued. This lends support to the statement of the agp.nt, Craft, that the question was only applicable to those having fixed wages or salary, and that it was the custom of the company to insure merchants, professional men, and those having po fixed income,without respect to their earnings. This may explain, and ina measure qualify, the seemingly tortuous and unfair aQtion of the agent. If the question and answer were as essential as claimed, it seems singular that diligent officers of the company could have been misled to its prejudice. The alteration was patent upon the face of the paper, and in a handwriting so different from that in which the body of the application was filled that one would suppose the company would have been warned upon bare inspection. The difference was so striking that the attention of the court was attracted thereto at a previous trial oithe cause, when no question was suggested, and counsel on neither side supposed that the paper had been tampered with. Unless blinded by overconfidence in its agent, the most casual scrutiny of the paper by an officer vigilant to discharge his duty would have put the compaIlY UpOIl inquiry. In such case, when the company ignores patent irregularities, issues the policy, and accepts the premium, it cannot be heard to insist that the wrong .of its agent shall be visited upon others. Even holders of negotiable securities taken before matu!ity, in the usual course of business, are held chargeable with notice when the marks on the instrument are of a character to apprise one to whom the same is offered of the alleged defect. Goodman v. Simonds, 20 How. 365. . It cannot be said that the assured was a party to the fraud, if fraud there was. Assuming, as found by the jury, that this death was accidental, and that the insurance was otherwise effected in good faith, the

CARTER tI. KANSAS CITY CABLE RY. CO.

87

illere fact of non-disclosure of his financial embarrassments was not wtongful. He was not inquired of upon that subject.. Silence under such circumstances is not fraudulent. Most men engaged in large terprises meet with financial embarrassments, and their incomes are fluctuating. If no false statement is made, inducing insurance which could not otherwise be obtained, there exists no obligation to disclose one's financial condition. If the information be deemed essential, it should be insisted upon, not waived, and the assured should not be persuaded to silence by the active negligence or fraud of the agent of the assurer. The conclusion to which my.mind is impelled is in accord, as I conceive, with the rulings of every court that has spoken to the precise question involved. Mowry v. Rosendale, 74 N. Y. 360; Grattan v. Insurance Co., 80 N. Y. 281; Donnelly v. Insurance Co., 70 Iowa, 693, 28 N. W. Rep. 607; Schwarzbach v. Union, 25 W. Va. 622, 661. There must be judgment for the plaintiffs upon the verdict.

The injury of a passenger raises a presumption that the carrier was negligent.

Evidence that after the injury a skilled mechanic connected with defendant's road devised a patent to prevent similar accidents is immaterial, unless by reasonable diligence defendant could have discovered the new device before the injury.

8.

SAME-DEFECTIVE ApPLIANCES.

If defendant, a cable-car company, procured the best grip it knew of, after, due investigation, and subjected it to the best tests known, and thoroughly examined all the machinery of its cars each night by competent men, it is not liable for an in. jury occasioned by the breaking of the shank of the grip from some latent defect, causing the car to run rapidly down hill and collide with another car, it having diligently applied all known brakes to hold the car on the hilL

At Law. Jettrrwre &: Son, for plaintiff. Johnson &: Lucas, for defendant.
PHILIPS, J., (orally charging jury.) This is an action for personal injuries alleged to have been sustained by plaintiff while a passenger on defendant's cable-car at Kansas City. The plaintiff took passage un the car at the Union depot station to come up into the city. From that point to the summit of the hill there is a steep incline of several hundred feet in length. Just as the car reached the summit of the incline it suddenly stopped, and then began to run backward, to the foot of the incline, with great velocity, where it collided with another of defendant's cars. The plaintiff received by this collision injuries to one of his ankles and handt!.